Teva Pharmaceutical Industries Ltd. (TEVA) has agreed to buy U.S. rival Ivax Corp. (IVX) for $7.4 billion in a cash-and-stock deal that returns the Israeli firm to top position in the market for generic drugs.

The transaction, announced on Monday, is the latest in a wave of consolidation sweeping the sector and will enable Teva to overtake rival Novartis AG (search) in the supply of unpatented medicines.

Teva said it would offer for each Ivax share either $26 or 0.8471 of a Teva American depositary receipt under the transaction, which is expected to close in late 2005 or early 2006.

Industry analysts said the deal would ensure Teva's growth and that while the price at four times Ivax's 2004 sales was not cheap, it was in line with other big generics transactions.

Ivax shares, which closed at $22.88 on Friday on the American Stock Exchange (search), rose to $25.40, while Teva was up 1.9 percent at $31.76 on Nasdaq.

The cash portion will be funded using Teva's cash and committed credit facilities, and Ivax shareholders will own 15 percent of Teva on a fully diluted basis after the deal.

This will be the largest acquisition ever by an Israeli company. Teva, Israel's biggest publicly traded company, has a market capitalisation of nearly $20 billion, while Ivax's market value is $6 billion.

The two companies combined would have sales of over $7 billion and employ 25,000 people, they said in a statement, which confirmed a report of the deal in Monday's New York Times.

President and Chief Executive Israel Makov said he expected the acquisition to become accretive to earnings within the first year.

Teva said Ivax will bring a strong presence in Latin America and Central and Eastern Europe and complementary operations in North American and Europe.

"It makes a lot of sense. The sector is consolidating, and Teva has never made any secret of its desire to do more deals as a way of growing," said Nomura analyst Frances Cloud in London.

Other analysts said while the acquisition was a good move strategically, the financial implications have yet to be seen.

"There's a lot of overlap, especially in the U.S. in the generic pipeline," said Ori Hershkovits, an analyst at Israeli brokerage Leader & Co.

Banc of America Securities analyst David Maris said Teva needed another deal to kickstart its growth rate one year on from its $3.4 billion acquisition of U.S. firm Sicor.

"We believe that without a significant transaction, Teva would have difficulty in meeting consensus estimates," he said.

The generic drugs sector has seen its busiest ever year for deal-making as companies seek to increase their global reach and reduce costs in a highly competitive marketplace.

Around the world, cheap generic medicines are in a sweet spot as governments promote their use in order to cut costs and increasing numbers of branded blockbuster drugs lose patent protection.

But growing popularity has also spawned increased competition and prices of generic medicines have tumbled in major markets as more manufacturers, especially from India, enter the business.

The biggest deal to date in the sector was Novartis's agreement in February to acquire Germany's Hexal and Eon Labs of the U.S. for more than $8 billion, putting the Swiss company ahead of Teva as the leading generic company.

News of Teva's planned deal with Ivax hit shares in Germany's Stada Arzneimittel, which fell as much as about 4 percent as speculation that Teva would acquire Stada evaporated.

Ivax Chairman and CEO Phillip Frost and other managers of Ivax holding 19 percent of the company have agreed to vote their shares in favour of the transaction.

Lehman Brothers and Credit Suisse First Boston acted as financial advisers to Teva, and UBS investment bank acted as adviser to Ivax.

($1 - 4.55 shekels)